Stocks for the Long Run: Target vs. the S&P 500

Investing isn't easy. Even Warren Buffett counsels that most investors should invest in a low-cost index like the S&P 500. That way, "you'll be buying into a wonderful industry, which in effect is all of American industry," he says.

But there are, of course, companies whose long-term fortunes differ substantially from the index. In this series, we look at how members of the S&P 500 have performed compared with the index itself.

Target shares have simply crushed the S&P 500 over the last three decades:

Source: S&P Capital IQ.

Since 1980, shares returned an average of 16% a year, compared with 11.1% a year for the S&P (both include dividends). That difference adds up fast. One thousand dollars invested in the S&P in 1980 would be worth $29,400 today. In Target, it'd be worth $116,000.

Dividends accounted for a lot of those gains. Compounded since 1980, dividends have made up nearly half of Target's total returns. For the S&P, dividends account for 41.5% of total returns.

Now have a look at how Target's earnings compared with S&P 500 earnings:

Source: S&P Capital IQ.

Again, significant outperformance. Since 1995, Target's earnings per share have grown by an average of 16.4% a year, compared with 6% a year for the broader index. That's testament to the power of the company's brand, and -- for better or worse -- a decades-long insatiable boom in consumer spending.

What's it all meant for valuations? Target has traded for an average of 19.4 times earnings since 1980, compared with 21 times earnings the S&P 500 averaged during the period. It's far different today, however. Target currently trades for just over 13 times earnings.

Through it all, Target's shares have been clear outperformers over the last three decades.

Of course, the important question is whether that will continue. That's where you come in. Our CAPS community currently ranks Target with a four-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add Target to My Watchlist.